Corruption and cover-ups in Leighton Holdings' international
construction empire were rife and known to top company executives and
directors, according to internal company files.
Those in the know included the Australian construction giant's chief
executive at the time, Wal King, and his short-term successor David
Stewart.
In revelations that will cause international embarrassment for
Australia and raise questions about the role of the nation's corporate
watchdog, the files expose plans to pay alleged multimillion-dollar
kickbacks in Iraq, Indonesia, Malaysia and elsewhere, along with other
serious corporate misconduct.
Hundreds of confidential company documents, obtained during a
six-month Fairfax Media investigation, also reveal a culture of
rewarding corruption or incompetence, and abysmal corporate governance
in what looms as the worst recent case of corporate corruption
involving a major Australian firm.
Mr King, one of Australia's most highly regarded chief executives and
who has reportedly been approached by Communications Minister Malcolm
Turnbull about taking an NBN Co board seat, was chief executive of
Leighton Holdings for 23 years and is a prominent Sydney business
community figure.
Leighton is one of Australia's biggest construction companies, with a
market value of nearly $7 billion. It has built the Victorian
desalination plant, Sydney's ABC studios, and Queensland's Ross River
dam.
Among the most explosive of the company files is a memo written on
November 23, 2010, by then acting CEO David Stewart. It says Leighton
International managing director David Savage had revealed he and Mr
King knew of a $42 million kickback to a firm in Monaco nominated by
Iraqi officials who gave Leighton a $750 million oil pipeline contract.
"I asked did Wal K approve this? And he said yes," the memo says.
Around the same time, a private consulting firm, Concorde
Corporation, advised Leighton it was exposed in Asia to allegations of
''conflict of interest, kickbacks, unethical staff appointments and so
on''.
Concorde warned that the allegations ''indicate a serious breakdown
of probity, governance and ethics within Leighton's Asian operations''.
The allegations coincide with a tumultuous time at Leighton after Mr
King, who has been awarded an AO, left the company to be replaced by Mr
Stewart, and an international takeover battle between Leighton's major
shareholder, the German company Hochtief and a Spanish firm, ACS.
In his time at the top, Mr King transformed Leighton into a global construction powerhouse with $13 billion in revenue.
Confidential legal advice provided to Leighton in late 2010 also
warned that executives might be linked to corruption or serious
mismanagement and that the company was facing an ''extreme'' risk of
damage to its reputation.
But Leighton withheld the Stewart memo, along with other files
detailing corruption, from authorities for several months or failed to
pass some of them on at all.
Another key factor impeding full exposure of the corporate scandal is
the apparent failure of the corporate watchdog, the Australian
Securities and Investments Commission, to conduct rigorous
investigations in the two years since Leighton alerted federal police
that it may have breached foreign bribery laws in Iraq.
ASIC has spoken to no witnesses or suspects, despite witnesses
telling federal police they had grave concerns about corporate offences
in the company.
Key Leighton witnesses and whistleblowers, including former top
Leighton executive Stephen Sasse, told Fairfax Media on Wednesday that
ASIC and the federal police appeared unable to adequately respond to the
breadth of issues engulfing Leighton.
''I would be surprised if the federal police or ASIC have the
expertise or technical knowledge to undertake investigations of this
nature,'' Mr Sasse said. ''I suspect that the lack of urgency stems from
resourcing issues rather than any lack of purpose.''
He declined to answer questions about his stint at Leighton in 2011.
Another source familiar with the Australian Federal Police
investigation revealed that AFP agents privately complained about
inadequate resources to conduct a proper probe.
ASIC - which failed to respond to inquiries from Fairfax Media - is
already under pressure for failing to investigate alleged corporate law
breaches linked to the Reserve Bank bribery scandal. ASIC referred
questions about Leighton to the federal police, which stressed it was
treating the Leighton case as a ''priority''.
''We are working to ensure that all alleged criminal activity is uncovered,'' Commander Ian McCartney said.
In a statement, Leighton Holdings said on Wednesday that it was
co-operating with police, had strong anti-corruption policies and that
its directors have ''at all times executed their duties with the
appropriate care and diligence'' required by law.
Mr Stewart's note says Mr Savage had claimed that Monaco-based firm
Unaoil had been paid kickbacks by Leighton via an inflated $87 million
contract of which the value of ''real work'' was ''less than half''.
Unaoil is run by an Iranian family that boasts close ties to Iraq's
oil minister and Prime Minister. Unaoil was recently named in the
British High Court as a company with influence among Middle Eastern and
African officials and that was once wired a commission ''disguised as
payment for office equipment''.
Mr Savage was given a $2 million bonus when he left the company on
March 31, 2011, despite internal concerns about his knowledge of
corruption.
Mr Stewart's memo of November 23, 2010, says Mr Savage allegedly
suggested an extra $23 million illicit payment to win a further $500
million worth of work in Iraq.
''It is exactly what got the AWB into trouble with their trucking
contract at two to three times market rates,'' Mr Stewart recorded
himself telling Mr Savage, in reference to the Iraq bribery scandal
involving AWB Limited in 2006.
''Wal King is still CEO and if he is OK with it, go for it,'' Mr Stewart's memo says.
The memo was not passed to police until November 2011, a year after
Mr Stewart wrote it and only after lawyers working for Leighton
accidentally stumbled over it.
When Fairfax Media tried to question Mr Stewart about the bribery
allegations this week, he responded: ''I don't know anything about it at
all.''
Mr King declined to speak to Fairfax Media. A company source still
close to Mr King cast doubt on Mr Savage's claim - as recorded by Mr
Stewart - that he had discussed inflating the Iraqi contract with the
former chief executive.
But the confidential Leighton files also reveal that Mr King and
other top executives were emailed in 2009 by a whistleblower about a
''payoff'' made to a corrupt Leighton employee in connection to a
barge-building project in Asia.
They also reveal the whistleblower's corruption concerns were subject
to bungled internal investigations, despite spanning ''several
countries'', including Indonesia and India, and exposing ''criminal''
conduct, including a ''systemic fraud''.
''It is not difficult to understand the frustration expressed by [the
whistleblower] ... that there has been an attempt to cover up these
issues,'' a company memo says.
The whistleblower allegations exposed another company middleman,
Malaysian-based businessman Pakianathan Sri Kumar, who was allegedly
involved in corruption.
Mr Sri Kumar has worked with Leighton in Iraq, Indonesia, India and
Tanzania and the whistleblower said he had heard that the businessman
received ''a 10 per cent kickback'' on certain projects, ''some of which
is passed to Leighton executives''.
Leighton's Indian projects alleged to be tainted by corruption were
multimillion-dollar offshore works in the Indian town of Cochin and the
district of Jamnagar.
In confidential legal advice provided to Leighton in late 2010,
Sydney lawyer Malcolm Davis warned that Leighton executives may be
tainted by corruption or serious mismanagement.
''It is perhaps trite to say that 'reputational' risk to LHL
[Leighton Holdings] and the greater LH Group is extreme were it ever to
become known that LIL [Leighton International] ... engaged in conduct of
the kind referred to in the allegations of impropriety.''
Mr Davis said it ''beggars belief'' that a Leighton senior project
manager who had engaged in clearly ''criminal conduct'' with Mr Sri
Kumar in Indonesia was not sacked.
The manager, Gavin Hodge, allegedly stole $500,000 worth of steel
from Leighton to build a barge for Indian company Adani in a
black-market racket. Rather than being sacked, Mr Hodge was given a
bonus and thanked for his work by a Leighton executive who knew of his
alleged corruption, Russell Waugh.
Mr Waugh, who could not be reached, is now a top executive at engineering and property services company UGL.
After Mr Davis' scathing advice, Leighton finally fired Mr Hodge and
initiated private legal proceedings against him to recover $500,000 he
allegedly stole.
Mr Savage declined to answer questions.
The questions Fairfax Media put to Leighton Holdings
- Why did the board of Leighton International, or some or all of its
directors, or directors of LHL, approve a multimillion dollar agency
payment to a Nominated Sub Contractor chosen by Iraqi authorities in
relation to the Iraqi pipeline contract won in 2010? Did the board or
senior company officials ever consider the prospect that part of this
payment could be used to bribe Iraqi officials?
- What due diligence was done by the LIL and Leighton Holdings boards'
on the use of Nominated Sub-Contractors in Iraq and/or other locations?
- Why did the CEO of LHL release a statement in Feb 2012 that the
company had voluntarily notified the AFP of the Iraq issues when they
had in fact been recorded by the company in 2011?
- Why did the company not immediately notify authorities when these
and other corruption related matters, including Alan Fenwick's
whistle-blowing, became known to senior company officers in 2010 and
2009?
- Current Leighton Holdings chairman Bob Humphris was part of the LIL
board when large and suspicious payments were made to subcontractors in
Iraq and when corruption issues occurred on other LIL projects. What
steps did Mr Humphris take to act with care, diligence and in the best
interests of the company, in respect of these issues?
- Did Mr Humphris and his fellow directors on the LIL board closely
examine 'green sheets' on major projects, including the Iraq Oil
project, and, if so, what was the reaction to the agency fees detailed
in these sheets? If green sheets weren't closely examined, why not?
- Why did LHL not ensure appropriate investigations and action were taken when Alan Fenwick first aired his corruption concerns?
- Why did the company consider it appropriate that senior executive
Russell Waugh be placed in charge of investigations into the conduct of
his employee Gavin Hodge, given Mr Waugh's obvious conflict of interest
in the matter?
- What due diligence did the board of LIL or the board of LHL do
before approving payments and consultancy agreements to contractor LYE?
- What services has LYE provided the company and why was LYE allowed
to continue his association with Leighton after it was known that he may
be involved in corrupt behavior?
- What is the company's response to allegations that bribes or
corruption have been apparent in projects in India, Tanzania, Malaysia,
Indonesia and the Middle East?
- Why was Unaoil engaged by Leighton International?
- In India, is the LIL or Leighton Holdings board aware of the arrest
of the head of its joint venture partner, Oriental Structural Engineers,
by India's anti-corruption agency for allegedly bribing government
officials to win highway construction contracts in 2010?
- In Malaysia, the deputy chairman of Leighton Malaysia, Tan Sri Hari
Narayan was until recently the on the board of the Malaysian
Government's National Highway Authority, an entity involved in road
building contracts won by Leighton. Does this present Leighton with a
conflict of interest problem, as well as a possible breach of Australian
laws preventing payments or benefits to foreign officials in order to
obtain a business advantage?
- In 2008 Leighton Offshore agreed to provide training and possible
employment to students at a Malaysian TAFE owned by a political party
that is part of the country's ruling coalition and chaired by a
politician (Samy Vellu) who in his ministerial capacity had since 1987
awarded contracts to Leighton. Has the board of LIL or Leighton Holdings
ever sought legal advice on this Malaysian TAFE agreement to see how it
complies with Australia's foreign bribery laws? If so, what did the
advice say?
- Have the boards of either LIL or Leighton Holdings passed on all
evidence of possible bribery offences or breaches of corporations act
duties to ASIC?
- In what capacity has LIL engaged Oceanking?
- Did LHL give permission for Mr David Savage to start a new EPC venture while he was working at LHL?
- Given the unresolved and serious issues facing LHL, why should
shareholders have faith in the company's ability to ensure good
corporate governance?
The awswers
TO: Nick McKenzie and Richard Baker, by emailDATE: 2 October 2013
In 2011, Leighton Holdings voluntarily reported to the Australian
Federal Police (AFP) a possible breach of its Code of Ethics as soon as
it became aware of a possible breach although it did not have sufficient
evidence to conclude that a breach had occurred. To facilitate the
collection of evidence, Leighton kept the information confidential
until, with the AFP¡¦s approval, an announcement could be made in
February 2012 having concluded with the benefit of legal advice that
this would not breach its continuous disclosure obligations.
Following the discovery of the possible breach of its Code of Ethics,
Leighton conducted an internal review of the projects involved. The
internal review identified instances of failures to meet governance
standards in the proper documentation of contractual arrangements. A
consequence was the dismissal of a senior executive in July 2012.
Leighton continues to cooperate with the AFP while the AFP undertakes
its investigation. As this is subject to Federal Police investigation,
Leighton does not intend to make any further comment.
There have been a number of internal investigations relating to the
construction of a barge on Batam Island culminating in Leighton taking
court action against a former employee for alleged breaches of
contractual and fiduciary duties. As the case is currently before the
court, Leighton is restricted from making further comment.
Directors
The Directors of Leighton¡¦s subsidiary companies and of Leighton
Holdings are aware of their responsibilities and have at all times
executed their duties with the appropriate care and diligence, and in
the best interests of each relevant company.
Corporate governance Over recent years, Leighton Holdings has
continued to strengthen and improve its corporate governance and risk
management processes including:
- Introducing a comprehensive Code of Business Conduct which sets out
the behaviours that Leighton employees must adhere to, regardless of
where they operate. The Code includes disciplinary action if breaches of
the Code occur
- Further enhancing its risk management capability to better measure,
manage and control risk. Tender risk controls have been improved,
including an update to the criteria for determining levels of risk in
tenders
- Establishing a ¡¥5 gate¡¦ tender review and approval process, with
separate approvals required to: pursue a prospect; prepare and submit a
non-binding proposal; prepare a tender; submit a tender; and execute a
contract. This process culminates in projects of a certain size and risk
profile requiring the approval of the recently established Tender
Review and Risk Committee of the Board
- Taking additional steps to enhance its independent internal audit function and assurance program
- Establishing itself as a Strategic Management Company to ensure the
appropriate span of control across the business and substantially
refreshing its management team
These changes have strengthened the Group and brought a new governance rigour to the benefit of shareholders.
The Company is focused on ensuring that its values are consistently
applied across the Leighton Group and any deviation from those values
will not be tolerated.
theage.com.au 3 Oct 2013
Another company riddled with corruption / fraud, with no doubt that that authorities will do litle or nothing about it.
The so called quote: " Deeply concerned" may also refer to the fact that they are concerned that they have been caught out!